The S&P/ASX 200 Index (ASX: XJO) is on fire today. At the time of writing, the flagship Australian share market index has jumped a healthy 1.49%, which puts it back over 9,000 points for the first time since April. But what does this have to do with income investors or safe cash flow?
Well, we'll get to that. But first, it's important to note why the market is moving so enthusiastically this Wednesday. It seems that the catalyst is the latest inflation data out of the Australian Bureau of Statistics (ABS). According to the Bureau, inflation ran at 0.6% for the June quarter (the three months ended 30 June). That was down from 1.4% in the previous quarter. That 0.6% translates to an annualised figure of 3.8%. The Reserve Bank of Australia (RBA)'s preferred metric of core inflation was even better at 3.6%.
As my Fool colleague Bernd reported today, these numbers were below what investors were expecting. The conventional wisdom goes something like this: lower inflation means less chances of an interest rate rise, thus good news for the share market. Cue a buying frenzy.
However, although inflation is running cooler than feared, we cannot escape the fact that it is still hot. The RBA's mandate dictates that we aim for an inflation target band of 2% to 3%. 3.6% is not where we should be. As such, commentators are now divided on whether interest rates will hold steady for the rest of 2026 or whether we might get another rise before the end of the year.
Notably, no one seems to think there's much chance of a rate cut anytime soon.
And that's the once-in-a-decade opportunity for a safe source of cash flow that I want to discuss.
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The best time to invest in safe cash flow assets since 2011?
Most Australians view high interest rates as a negative. However, there are upsides, even for mortgage-holders. High interest rates mean that the returns we can potentially enjoy from 'safe' investments are also relatively elevated. Given the possibility of capital loss, no ASX share can truly be called 'safe'. But we can put that label on investments that offer zero, or at least near-zero, risk of permanent capital loss. Those include savings accounts, government bonds, and term deposits.
As it happens, these investments are all correlated to the cash rate. With the cash rate at 4.35%, investors haven't seen these safe investments so attractive since way back in 2011.
To illustrate, you can invest in a savings account at an interest rate of over 5% today. Some term deposits are offering rates of up to 5.5%. With inflation running at 3.6%, those are real returns (in the economic sense of the word). And a real opportunity for safe cash flow that we haven't seen in more than a decade.
So if you value the safety of capital and a reliable source of income, now is the time to take advantage of this opportunity.
