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Will fixed deposits yield greater returns?

I am sick of the stock market going up and down and lately I have learnt that most financial planners work out their plans on a return of around seven to eight per cent.

At the same time, I see that fixed deposits at the banks are around seven per cent, so why worry about shares that can let you down? What do you think? Also I am not sure how long I should lock in for?

It’s not bad thinking and if you only need a seven per cent return to make your wealth grow, then it could be a good idea for you. And yes, financial planners use a figure of seven to eight per cent for returns and this is what many people argue will be the long-term return from shares, based on what the indexes such as the All Ords might return including dividends.

However, financial planners hope that their decisions will help their clients do better than their safe seven to eight per cent and so a 10 to 12 per cent goal is often the un-stated hope.

By the way, I have seen work done which showed the return from quality shares was between 10 to 12 per cent. If you get a return of 12 per cent, your money should double every six years. If you opt for seven per cent, then your money doubles about every 10 years.

In terms of how long you should lock your money up, it’s a gamble. For five years, you can get 7.05 per cent from Westpac and 7.3 per cent from Rabobank. For three years, Rabobank offers 6.75 per cent and ING Direct has 6.7 per cent for two years. Over five years, the 7.3 per cent could get up to eight or nine per cent but, if the world has a big slow down, the rates could fall over that five-year period.

As you can see, it’s a gamble but at least the rates on offer now are pretty good. My guess is that rates will rise over the next year or so but after that I’m not so sure.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, July 16, 2010

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