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How Retirees Can Beat 1% Rates With Shares

Retirees are faced with a difficult decision of what to do with their money after the Reserve Bank of Australia (RBA) decided to cut interest rates again to 1%.

The Reserve Bank of Australia is Australia’s central bank. One of its biggest roles is to decide Australia’s interest rate, taking into account economic conditions including unemployment, inflation and the housing market. The RBA interest rate has a ripple effect across the whole economy.

How Retirees Can Beat 1% Rates With Shares

Term deposits just don’t seem worth it any more, do they? Particularly when you factor in inflation. In real terms people might be losing money with the money in the bank.

And who knows how long interest rates are going to stay this low? I think the best way to combat this is with shares. But there isn’t just one option, I think there are two:

Dividend Shares

The obvious way to make up for the loss of yield is to invest in ASX dividend shares. You wouldn’t need to put all of your money into dividend shares to make up the loss, depending on the yields you choose.

There are some shares that have very high dividend yields such as WAM Research Limited (ASX: WAX) and Naos Emerging Opportunities Company Ltd (ASX: NCC). However, I believe it’s important not to significantly overpay for any shares, which is why I’m wary of the valuations of Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD).

However, I’m more attracted to the idea of investing in businesses which have a high chance of maintaining and growing the payment to shareholders such as businesses like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Future Generation Investment Company Ltd (ASX: FGX).

Growth Shares

The other way is to generate returns from the capital growth of businesses, rather than the income.

Some of the best growth shares on the ASX, like Xero Limited (ASX: XRO), may or may not be too expensive with the current valuations.

There are other growth shares that may be cheap for the growth they could generate. It’s impossible to know which share prices will do well in the short-to-medium-term, but Webjet Limited (ASX: WEB), MNF Group Ltd (ASX: MNF) and MFF Capital Investments Ltd (ASX: MFF) could be some of the better performers over the next two to three years.

They aren’t the only growth shares could be exciting performers. The rapidly growing businesses in the free report below could also be good ideas.

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Disclosure: Jaz owns shares of Washington H. Soul Pattinson and Co., Future Generation Investment Co and MFF Capital Investments at the time of writing, but this could change at any time.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

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