Watching your wealth grow when the rates are low

newspaper finance

Presently, Australians have been experiencing one of the longest periods of interest rate stability in the last few decades. The Reserve Bank of Australia has kept the official cash rate - which underpins the interest rates offered by lenders - at the historically low number of 2.5 per cent for well over a year.

While there's no doubt you've heard about this news, if you're formulating an investment strategy, you're probably wondering how this development relates to your plans. In fact, there are a number of things to think about when planning on investing in such an environment.

Investing in property

With the real estate market on the up-and-up, this may well be the first thing that comes to many minds when thinking about interest rates. With lower mortgage repayments, it's easier to balance repaying your investment home loan as well as what you own on your existing home.

You could even consider refinancing your current mortgage at a lower rate in order to carry out improvements that will raise its value.

Consider switching from saving to shares

Putting your cash gradually away into a savings account is one of the most surefire and secure ways to build up a good sum of money. However, that depends on interest rates being high enough to grow your savings over time - something you don't have in low interest environments.

Instead, you could consider investing in shares. They may have more risk, but being growth assets, they're not dependent on the accumulation of interest.

Asset allocation shouldn't be o ne size fits all

It makes sense to gear your current asset allocation toward the prevailing set of conditions - in this case, predominantly low interest rates.

However, you'll need to keep an eye on whether this environment changes and how, and fine-tune your allocation towards this. After all, interest rates won't stay low forever.