Term deposits the next phase in building a retirement portfolio
In a move to offer alternative investments for retirement, Westpac have launched a range of term deposit products in what the bank sees as a growing market.
Westpac executive director, global capital markets David van Ryn said for the past 12 months the group have been developing a suit of term deposits under the name Westpac Retirement Deposits that gives investors a broader choice of investment outside the scope of traditional fixed rate return options. The deposits are covered under the government's Financial Claims Scheme in order to allow clients to build a safe and dependable income stream, he added.
As part of the offering, Westpac has developed fixed, floating and inflation-linked deposits and the company stated that it was seeing significant demand from the retiree and pre-retirement space. van Ryn believes offering diversification and flexibility is the next phase in term deposits.
"For example, if you had a fixed rate bond in a rising interest rate environment you would be generating capital losses," he said.
"By comparison, having a floating rate when rates are falling will mean an investor will be receiving capital gains on a fixed rate portfolio. They actually reduce the total volatility of return in that portfolio."
Investors are starting to structure a greater proportion of their portfolios around a selection of term deposits and are able to apply the same principles as they would in an equities portfolio, van Ryn said. Clients have the opportunity to build an annuity-style cashflow in the form of a government guaranteed product, he added.
Van Ryn said that as volatility in the equities market and the accumulation of the draw-down phase of superannuation continues, term deposits are a good alternative retirement product.
"The reality for all banks' willingness to improve their deposit funding is people need to be willing to invest in longer term deposits. When you start investing in longer term investments, diversification becomes important," he said.
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