I'm a firm believer that every sharemarket investor should carry a considerable amount of cash in their investment portfolio.
But earlier this week, I went to my bank and was amazed at how much (or how little!) they were willing to offer me on a term deposit.
Indeed, on a short-term investment I would have been paid a rate of less than 3% per annum.
I sat back and thought to myself, with inflation at 3% and tax on my interest, I would be losing money from a purchasing power perspective! With my normal cash account providing a similar rate of interest, it makes very little sense for me to lock my money away in a term deposit.
My own rule of thumb is to have enough cash equal to more than a month's worth of bills. Then some cash in a savings account and a portion on hand for emergencies. In my stock broking account I aim for 33% cash also, to capitalise on market setbacks.
However now, more than ever, it appears vital for investors to minimise their exposure to cash.
Diversification across various asset classes is essential. Indeed an investor should balance their weighting in stocks, property, cash (including term deposits and savings accounts) and bonds appropriately.
'Riskier' assets (such as stocks and property) should be considered part of your investment portfolio, provided you're holding period is more than five years.
4 big dividend stocks on offer right now
In the S&P/ASX 200 (INDEX^: AXJO) (ASX: XJO) there are number of popular companies trading on quite respectable dividend yields which also offer growth potential. For example, M2 Group Ltd (ASX: MTU) – the owner of Dodo, Primus and Eftel telecommunications brands – and Ozforex Group Ltd (ASX: OFX) – a low cost foreign exchange provider – are trading on forecast fully franked dividend yields of 3.5% and 3.3%, respectively.
When franking credits are accounted for, the grossed-up dividend yields are 5.1% and 4.7%, respectively.
Big companies, such as Insurance Australia Group Ltd (ASX: IAG) and Scentre Group (ASX: SCG) – the owner of Westfield's Australian shopping centres and properties – are offering up dividend yields of 5.9% and 5.8%, respectively. Almost double the rate on my bank's term deposits.
Having grown their dividend payouts hugely in the past few years, in another five years I imagine the yield on an investment in either stock will be considerably higher than it is today.
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