Flight to security 'overdone'

Investors who want additional income should reassess their investment strategies to counter the freeze on mortgage funds, according to Michael Hutton, the head of wealth management at HLB Mann Judd.

“The flight to security has been severely overdone, leaving many investors in interest-bearing bank deposits where yields are already falling as interest rates come down,” Hutton said.

Trying to put all their investments in cash to avoid risk would put their capital at risk from zero growth potential, and high inflation will eat away at their investment, Hutton said.

Investors should take advantage of the current lows on the stock market and put their money in shares with a long-term future, such as blue chip stocks.

“It doesn’t really matter if it turns out that the market still has a little way to fall, as long as the stocks selected have a long-term future. It is inevitable that in three or four years the stock prices we are now seeing for blue chips are going to seem bargain basement opportunities, even if they do slip a little more over the next few months,” Hutton said.

Shares in companies that will hold their present dividend rates are offering excellent tax-enhanced yields, such as the Australian ‘Big Four’ banks, Hutton said.

Banks that are giving 6 per cent yields at the time of writing, and with fully franked dividends, compare very favourably with current cash returns, he noted.