Question 1: What should 73 year old retired people who are 90% in cash (earning 2.15% interest currently) do with their money?
Answer (by Paul Rickard): The $64 million question! Sounds like you really aren’t comfortable with shares or other higher risk assets, so this late in the cycle, I am very reluctant to recommend that you invest in growth style assets.
There is nothing wrong with earning 2.15% and taking absolutely no capital risk.
If you are prepared to take on some more risk (which means you could lose some of your capital), I offered some alternatives to term deposits in this article. See https://switzersuperreport.com.au/five-alternative-investments-to-term-deposits/
Question 2: I notice that you recommend ISO as a small companies investment. There have recently been a number of articles written e.g. from Fidelity, which make a strong case for using an active manager for small caps, rather than a passive ETF like ISO. Could you please comment.
Answer (by Peter Switzer). I think there is a great case for using an active manager in that part of the market. If anything, this is the part of the market where they should perform best because companies are less widely analysed. An issue, however, is that due to popularity, the active manger gets “too big” for this sector and can’t readily add to or exit their positions.
Another challenge is identifying consistent performers where you are not paying a premium to invest. Two listed investment companies that you could consider are WAM Microcap (WMI) and Mirrabooka Investments (MIR).
Question 3: One of the ETFs you suggested is IZZ, which is a Blackrock fund covering large cap Chinese stocks, with obvious attractions. Being a US company, what if Trump decides to stop Blackrock from dealing with Chinese ‘merchandise’ ? He and his hawks have already shown a propensity to do that. What happens to our investment?
Answer (by Peter Switzer): I think this is a very unlikely scenario. Dealing with ‘merchandise’ is a very different proposition to owning shares in a Chinese company.
IZZ (Blackrock’s iShares Large Cap China ETF) underlying investment is in an ETF (of the same name) listed in the USA. The constituents of this ETF are shares listed on the Hong Kong Stock Exchange.
Question 4: Could you please tell me where I can find the change in the All Ords Accumulation Index for the financial year 2018/2019.
Answer (by Paul Rickard): All Ords: 11.04%, S&P/ASX 200: 11.55%. These are total returns for FY19 (1/7/18 to 30/6/19), based on the accumulation indices. You can access at www.spindices.com (S&P Dow Jones)