Everyone knows term deposits now earn less than 2%.   I expect that this may even fall further next year, so if you are retired you either change your life style or you seek investments paying higher returns.

Does this necessarily mean more risk?   It certainly means having to invest in equities, or hybrids, bonds, fixed interest, mortgages and property trusts (REIT's).

Past performance has been good for these classes for a while, some even great, but in the event of a recession or stock market fall they may be affected, meaning perhaps some reduction of income and/or loss of capital.   And the old rule holds true; the bigger the promised return, the more risk.

But, there is another approach.   It is possible to earn higher returns and the risk can largely be managed with diversification.   That simply means not all the investment capital goes into one investment or even one class of investment.

It does mean though you need to be diversified into top quality assets.   A portfolio can be put together that gives a regular return of 6% or better, and the investments selected from a number of classes so that there is negative correlation (if shares go down, fixed interest will likely go up and balance out the portfolio), or investments are defensive, or equities held are minimal, etc.

If this appeals, the next decision is which investment(s), and consider the costs (should be under 1%pa), what is the investment risk, what if market conditions change, etc.   You will have noticed I have not made things simple and just listed out several investments.   There are two reasons.

The first is simple, accountants can no longer give financial advice unless registered for this, and secondly, as some financial planners do a great job in this area we prefer to refer the work to them.   For example, one planner has just proposed the investment of $500,000 to earn more income, previously all in bank deposits.   The income increases from 2% to 7%, and the portfolio is so defensive it is hard to see any capital risk.   And they review the investments at least quarterly and rebalance if needed.

The message is:   if you need more income but you are not prepared to accept significantly more risk consider diversification and we suggest don't do it yourself, use a good planner – call us for a recommendation or introduction.   Please note, we never receive any fees or commissions, the planners are selected on merit and performance.