Options in the valley of low interest rates

South African investors who rely on low-risk, interest-bearing investments have found themselves struggling in recent years.

Prior to this, South African investors, and particularly pensioners, had been spoiled by high real interest rates for quite some time. Not only were South African interest rates high compared to the rest of the world, but even ordinary money market returns had been beating inflation over the preceding five years. For example, the PSG Money Market Fund returned approximately 6.20% per annum over five years compared to the inflation rate of 4.30% per annum over the same period.

Once you move further up the yield curve, you can start looking at fixed-term options or unit trust funds with a longer investment horizon, even though these do involve a degree of capital risk in the short term. Of course, these returns do not come without risks and this must be weighed against each investor’s individual needs and circumstances.

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